How can I effectively split my investment income with my spouse?

Q. How can I effectively split my investment income with my spouse?

A: With the exception for separation and divorce cases, you cannot simply register your investments as joint and split income and capital gains 50:50 unless you can show that the invested capital equally came from both spouses. This is called income attribution.
It is not unusual for spouses to deposit salaries, inheritances and other amounts into a joint chequing account and subsequently transfer funds to a joint investment account. The latter is generally done to avoid the 1.5% Ontario probate fee.
Without income splitting, one spouse may be in the highest tax bracket at 46% while the other spouse may be at 21%. This annual disparity may cause a clawback or loss of one spouse’s OAS. Since 2007, you may only split registered pension and RRIF receipts by making a joint election by attaching CRA Form 1032 to your tax return.
You may transfer capital to your spouse if you receive fair market value consideration. A spousal loan bearing interest at CRA’s prescribed rate will suffice provided the borrower annually pays the interest by January 30th of the following year. A missed payment will result in attribution for that year and later years.
At the time of the loan, the rate is locked-in. For the first quarter of 2012, the rate is 1%. CRA interest rates for spousal loans have been as high as 5% in recent years. With lower rates, it has become more attractive to take advantage of spousal loans to optimize income splitting and to properly avoid the income attribution rules.

You should consult with your professional advisor on all related matters.